Kentucky STATE HIGH COST/PREDATORY LENDING REGULATIONS Last Updated: 2/22/18 By: RC Coded: 3/1/2018 By: ZB Reviewed: By:

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1 Kentucky STATE HIGH COST/PREDATORY LENDING REGULATIONS Last Updated: 2/22/18 By: RC Coded: 3/1/2018 By: ZB Reviewed: By: LAW: Kentucky Revised Statutes (Kentucky Revised Statutes Chapter (2)(a-z)) KY HB 552 passed 4/15/08 creating new section of Chapter 286) LOAN AMOUNT COVERED: From $15,000 to $200,000 principal amount BORROWERS COVERED: Individuals Organizations Trusts Other: TOTAL LOAN AMOUNT (TLA) IS DEFINED AS: Kentucky Revised Statutes Chapter (2)(a-z) Loan Amount as defined in HOEPA Note Amount Loan Amount as defined in HCML Other: LOAN TYPES COVERED: Conventional FHA VA RHS Other: LOAN PURPOSES COVERED: Purchase Builder Equity Out One Time Closing Purchase Plus Improvements Lot Loan Borrower Interim HELOC Construction to Perm Refinance Home Equity Closed End Modification Refinance Plus Improvements Home Improvement One Time Closing with Modification Assumption BRIDGE LOANS COVERED Yes No PROPERTY OCCUPANCY COVERED: Primary Residence Second Home Investment Raw Land APR THRESHOLDS: and APR Unteased APR Other: First Lien: 6.5 % Subordinate Lien: 8.5 % APR COMPARED AGAINST: Kentucky Revised Statutes Chapter (2)(a-z) APOR APR Itself

2 Treasury Yield DATE FOR APR TEST: Application Other: Date interest rate is set Other: Closing FEE TEST METHOD: Kentucky Revised Statutes Chapter (2)(a-z) Use HC Flag Use APR & Paid To ( ) Use APR & Paid To, ecept: FEE TEST THRESHOLDS: Kentucky Revised Statutes Chapter (1)(a)(5)(b) All liens: Greater of 6 % of TLA or $3,000 ADJUSTMENTS: No Yes How: FEES INCLUDED IN TEST: Kentucky Revised Statutes Chapter (2)(a-z) (2) "Points and fees" has the meaning assigned by 12 C.F.R. Section (b), as amended, ecept include PMI OTHER ITEMS TO BE TESTED/CONSIDERED: SPECIAL NOTES: Kentucky Revised Statutes Chapter (2)(a-z) A high-cost home loan shall be subject to the following limitations: (a) 1. No lender may make, provide, or arrange a high-cost home loan with a prepayment penalty unless the lender offers the borrower a loan without a prepayment penalty, the offer is in writing, and the borrower initials the offer to indicate that the borrower has declined the offer. The lender shall disclose the discount in rate received in consideration for a high-cost home loan with the prepayment penalty; and 2. If a borrower declines an offer required in paragraph (a)1. of this subsection, the lender may include a prepayment penalty schedule. No prepayment penalty shall be assessed against the borrower following the third anniversary date of the mortgage or sity (60) days prior to the date of the first interest rate reset, whichever is less. No prepayment penalty shall eceed three percent (3%) for the first year, two percent (2%) for the second year, and one percent (1%) for the third year of the outstanding balance of the loan; but in no event shall a prepayment penalty be assessed against a borrower refinancing with the mortgage loan company that funded the mortgage; (b) A high-cost home loan may not contain a provision which permits the lender, in its sole discretion, to accelerate the indebtedness. This provision does not apply when repayment of the loan has been accelerated by default, pursuant to a due-on-sale provision, or pursuant to some other provision of the loan documents unrelated to the payment schedule; (c) A high-cost home loan may not contain a scheduled payment that is more than twice as large as the average of earlier scheduled payments. This provision does not apply when the payment schedule is adjusted to the seasonal or irregular income of the borrower; (d) A high-cost home loan may not contain a payment schedule with regular periodic payments that cause the principal balance to increase;

3 (e) A high-cost home loan may not contain a provision which increases the interest rate after default. This provision does not apply to interest rate changes in a variable rate loan otherwise consistent with the provisions of the loan documents, provided the change in the interest rate is not triggered by the event of default or the acceleration of the indebtedness; (f) A high-cost home loan may not include terms under which more than two (2) periodic payments required under the loan are consolidated and paid in advance from the loan proceeds provided to the borrower; (g) A lender may not charge a borrower any fees to modify, renew, etend, or amend a high-cost home loan or to defer any payment due under the terms of a high-cost home loan, unless the fees are less than one-half (1/2) of any fees that would be charged for a refinance or unless the borrower is in default and it is in the borrowerâ s best interest; (h) A lender may not make a high-cost home loan unless the borrower has been provided the following notice or a substantially similar notice, in writing, not later than the time that notice provided by 12 C.F.R (c), as amended from time to time, is required: NOTICE TO BORROWER IF YOU OBTAIN THIS LOAN, THE LENDER WILL HAVE A MORTGAGE ON YOUR HOME. YOU COULD LOSE YOUR HOME AND ANY MONEY YOU PUT INTO IT IF YOU DO NOT MEET YOUR OBLIGATIONS UNDER THE LOAN. MORTGAGE LOAN RATES AND CLOSING COSTS AND FEES VARY BASED ON MANY FACTORS, INCLUDING YOUR PARTICULAR CREDIT AND FINANCIAL CIRCUMSTANCES, YOUR EMPLOYMENT HISTORY, THE LOAN-TO-VALUE REQUESTED AND THE TYPE OF PROPERTY THAT WILL SECURE YOUR LOAN. THE LOAN RATE AND FEES COULD ALSO VARY BASED ON WHICH LENDER OR BROKER YOU SELECT. YOU SHOULD SHOP AROUND AND COMPARE LOAN RATES AND FEES. YOU SHOULD ALSO CONSIDER CONSULTING A QUALIFIED INDEPENDENT CREDIT COUNSELOR OR OTHER EXPERIENCED FINANCIAL ADVISOR REGARDING THE RATE, FEES, AND PROVISIONS OF THIS MORTGAGE LOAN BEFORE YOU PROCEED. YOU SHOULD CONTACT THE UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT FOR A LIST OF CREDIT COUNSELORS AVAILABLE IN YOUR AREA. YOU ARE NOT REQUIRED TO COMPLETE THIS LOAN AGREEMENT MERELY BECAUSE YOU HAVE RECEIVED THESE DISCLOSURES OR HAVE SIGNED A LOAN APPLICATION. REMEMBER, PROPERTY TAXES AND HOMEOWNER'S INSURANCE ARE YOUR RESPONSIBILITY. NOT ALL LENDERS PROVIDE ESCROW SERVICES FOR THESE PAYMENTS. YOU SHOULD ASK YOUR LENDER ABOUT THESE SERVICES. ALSO, YOUR PAYMENTS ON EXISTING DEBTS CONTRIBUTE TO YOUR CREDIT RATINGS. YOU SHOULD NOT ACCEPT ANY ADVICE TO IGNORE YOUR REGULAR PAYMENTS TO YOUR EXISTING CREDITORS; (i) A lender may not make a high-cost home loan unless the lender reasonably believes at the time the loan is consummated that one (1) or more of the borrowers, when considered individually or collectively, will be able to make the scheduled payments to repay the loan based upon a consideration of their current and epected income, current obligations, current employment status, and other financial resources, other than the borrower's equity in the dwelling which secures repayment of the loan. A borrower shall be presumed to be able to make the scheduled payments to repay the loan if, at the time the loan is consummated: 1. The borrower's total monthly debts, including amounts owed under the loan, do not eceed fifty percent (50%) of the borrower's monthly gross income as verified by the credit application, the borrower's financial statement, a credit report, financial information provided to the lender by or on behalf of the borrower, or any other reasonable means; 2. The loan has been approved by an automated underwriting service offered by FNMA or Freddie MAC; 3. The lender verifies and documents that the borrower has liquid assets equal to fifty percent (50%) of the principal loan amount; or

4 4. The borrower has sufficient residual income as defined in the guidelines established in 38 C.F.R (e) and United States Department of Veterans Affairs form ; (j) If the proceeds of the high-cost home loan are used to refinance an eisting high-cost home loan held by the same lender as noteholder, the lender may not directly or indirectly finance: 1. Any prepayment fees or penalties payable by the borrower; or 2. Points and fees, ecluding those provided for in 12 C.F.R (c)(7), which in the aggregate are in ecess of four percent (4%) of the total amount financed; (k) A lender or mortgage loan broker may not, within one (1) year of the consummation of a high-cost home loan, charge a borrower points and fees in connection with a high-cost home loan if the proceeds of the highcost home loan are used to refinance an eisting high-cost home loan on which points were charged. A lender may not, at any time, charge a borrower points and fees in addition to those allowed by 12 C.F.R (c)(7) if the proceeds of the high-cost home loan are used to refinance an eisting high-cost home loan, on which points were charged, held by the same lender as noteholder. However, points and fees in accordance with this section may be charged on any proceeds of a high-cost home loan which are in ecess of the amount refinanced on the eisting high-cost home loan; (l) A lender may not pay a contractor under a home-improvement contract from the proceeds of a high-cost home loan other than by an instrument payable to the borrower or jointly to the borrower and the contractor, or at the election of the borrower, through a third-party escrow agent in accordance with terms established in a written agreement signed by the borrower, the lender, and the contractor prior to the disbursement; (m) A lender shall not refinance, replace, or consolidate a zero interest rate or low interest rate loan made by a governmental or nonprofit lender with a high-cost home loan. For purposes of this paragraph, a low interest rate loan is defined as a loan that carries a current interest rate that is two (2) percentage points or more below the current yield on United States Treasury securities with a comparable maturity; (n) A lender shall not finance single premium credit life, credit accident, credit health, credit disability, or credit loss of income insurance in connection with a high-cost home loan; (o) A lender shall not make a high-cost home loan unless the lender has made available to the borrower a videotape, or other similar audio-video media format such as DVD or CD, approved by the Department of Financial Institutions, which eplains the borrower's rights and responsibilities with regard to this section or high-cost home loans. A lender shall have available for viewing at least one (1) copy of the video in the principal office and each branch office of the lender; (p) A lender shall not make a high-cost home loan subject to a mandatory arbitration clause that is oppressive, unfair, unconscionable, or substantially in derogation of the rights of consumers. Arbitration clauses that comply with the standards set forth in the Statement of Principles of the National Consumer Dispute Advisory Committee of the American Arbitration Association in effect on June 24, 2003, shall be presumed not to violate this subsection; (q) A lender shall not charge a late payment fee on a high-cost home loan ecept in accordance with the following: 1. The late payment fee may not be in ecess of five percent (5%) of the amount of the payment past due or ten dollars ($10), whichever is greater; 2. The loan documents must specifically authorize the late payment fee; 3. The late payment fee may only be assessed for a payment past due fifteen (15) days or more; and 4. The late payment fee may only be charged once with respect to a single late payment; (r) A lender may not charge a borrower a fee for the first request of each calendar year for a written payoff calculation. Thereafter, for each subsequent request in a calendar year, the lender may charge a reasonable fee not to eceed in ecess of ten dollars ($10) or actual costs, whichever is greater, per request for a written payoff calculation on a high-cost home loan by a borrower in a calendar year; (s) A lender shall not initiate a foreclosure or other judicial process to terminate a borrower's interest in residential real property subject to a high-cost home loan without first providing the borrower, at least thirty (30) days prior to the initiation of any process, written notice of default and of the borrower's right to cure. The notice shall include a statement of the amount needed to be paid by the borrower in order to cure the default and the date by

5 which the payment is due to cure the default. If the amount needed to be paid will change during the thirty (30) day notice period, the notice shall provide information sufficient to enable a calculation of the daily change; (t) A lender shall not recommend or encourage default on an eisting loan or other debt in connection with the closing of a high-cost home loan that refinances all or a portion of the eisting loan or debt; (u) A lender shall not make a high-cost home loan that does not require an escrow account for taes and insurance; (v) A lender shall not process the application to make a high-cost home loan if the proceeds shall be used, in whole or in part, to repay the principal of an eisting loan secured by the borrower's principal dwelling that is not a high-cost home loan, without first requiring the borrower to obtain housing counseling by a HUDapproved counselor; (w) A lender shall not make a high-cost home loan that allows the borrower, for any part or all of the term of the loan, to make payments that are applied only to interest and not to principal; () A lender shall provide timely notice to the borrower of any material change in the terms of a high-cost home loan if the change is made after an application has been taken but before the closing of the loan. Notice shall be deemed timely if given not later than three (3) days after the lender has learned of the change or twenty-four (24) hours before the high-cost home loan is closed, whichever is earlier. If the lender discloses a material change more than three (3) days after learning of the change but still twenty-four (24) hours before the high-cost home loan is closed, it will not be liable for penalties or forfeitures if the lender cures in time for the borrower to avoid any damage; (y) A lender shall not make a high-cost home loan without verifying the borrower's income and financial resources through ta returns, payroll receipts, bank records, or other similarly reliable documents, whether provided directly by the borrower or through a third party with the borrowerâ s permission; and (z) A lender shall not make a high-cost home loan without verifying the borrower's reasonable ability to pay all scheduled payments of principal, interest, real estate taes, homeowner's insurance, and mortgage insurance premiums, as applicable. For loans in which the interest rate may vary, the reasonable ability to repay shall be determined based upon the following: 1. In the case of a high-cost home loan in which the rate of interest varies solely in accordance with an inde, the interest rate determined by adding the inde rate in effect on the date of consummation of the transaction to the maimum margin permitted at any time during the loan agreement; or 2. In the case of a high-cost home loan in which the rate may vary at any time during the term of the loan for any reason other than in accordance with an inde, the interest charged on the loan at the maimum rate that may be charged during the term of the loan. (3) Ecept as provided in paragraph (e) of subsection (2) of this section, the making of a high-cost home loan which violates any provisions of subsection (2) of this section is usurious, subject to the penalties of this chapter, and unlawful as an unfair and deceptive act or practice in or affecting commerce in violation of the provisions of KRS The provisions of this section shall apply to any person who in bad faith attempts to avoid the application of this section by: (a) The structuring of a loan transaction as an open-end credit plan for the purpose and with the intent of evading the provisions of this section when the loan would have been a high-cost home loan if the loan had been structured as a closed-end loan; or (b) Dividing any loan transaction into separate parts for the purpose and with the intent of evading the provisions of this section; or (c) Any other such subterfuge. The Attorney General, the commissioner of the Department of Financial Institutions, or any party to a highcost home loan may enforce the provisions of this section. Any person seeking damages or penalties under the provisions of this section may recover damages under either this chapter or KRS Chapter 367, but not both. New Net Income Limitations The epense to the consumer that an originating lender or broker can receive is capped at the greater of $2,000 or 4 percent of the total loan amount, whichever is greater.

6 The total loan amount is the amount financed minus the net income. Service released premiums that are listed on the HUD-1 at closing are included in the net income calculation. Premiums that are realized after closing are not considered net income for the purposes of this calculation. The amount financed is the face amount of the note, which includes the fees. Any fees passed on to third parties shall be contracted at rates that are in the best interest of the borrower. Sham arrangements shall be considered in violation of KRS